After its early Asian session slide, there was little for the dollar to do through the rest of Thursday’s active session but to drift to fresh lows for the year. The stumble below 77 on a trade-weighted basis was the notably the work of EURUSD’s drive above the closely watched 1.40 figure (a level that also happens to be the mid-point of the range between the July 2008 high and June 2010 low) with additional contributions by a renewed drive to 15-year lows for USDJPY and a rally towards parity for AUDUSD. That said, the meaningful break during the typically quiet and relatively illiquid trading period did not translate into the kind of follow through we would expect after such a hard-fought breakout. Typically, a meaningful breakout of this import will carry significant follow through as those stops and entry orders are triggered. Yet, shortly after the move, progress was immediately halted. Furthermore, with the influx of European and US trading interest, there was more of an effort to correct the sharp move than there was to catalyze it. The failure to generate momentum is most likely a consequence of light fundamental winds through Thursday’s session and the threat of high seas come tomorrow and into next week.

For fundamental trends, dollar traders’ primary concern remains stimulus expectations. Since the market caught the whiff of speculation surrounding stimulus expansion, the dollar has been under consistent and heavy pressure. Yet, as we track the influence this driver has on the currency, we note that the reaction following the decidedly dovish minutes was far more temperate than when the market was running on pure conjecture. This could very well be evidence of a buy-the-rumor-sell-the-fact scenario. However, there is still considerable time until we know definitively whether or not the central bank will increase its asset purchases. This is burdensome if momentum behind this trend flags now; because it will be far more predisposed to chop and false moves compared to the impact that confirmation would have if it came when speculative momentum was still fresh. Feeding doubt that the currency has overshot the reasonable bounds of the Fed’s likely stimulus contribution, we had a counter-trend stimulus comments through Thursday’s session. Richmond Fed President Lacker weighed with a warning that overemphasizing employment while making policy decisions could risk the central bank’s credibility for fighting inflation. What’s more, he said that he felt economic activity and inflation were more or less in line with the expectations he had set for maintaining policy. Less of an independent voice on the matter, the St. Louis Fed released a paper that suggested additional quantitative easing would do little to encourage growth as it would be absorbed by banks. For a definitive view on benchmarking stimulus, we look ahead to Fed Chairman Bernanke’s discussion tomorrow, aptly titled: ‘Monetary Policy Objectives in a Low Inflation Environment.’

In addition to commentary, those that are aren’t so certain of a November 3rd deadline for stimulus have been keeping an eye on macroeconomic data. The sharp increase in the trade deficit ($46.3 billion) and increase in jobless claims has little pull. Tomorrow, we have retail sales, consumer confidence and the consumer price index lined up. That is a perfect mix for gauging the balance of growth and inflation.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Watch and See on Dollar Selling, GBPNZD Short Term Setup

The euro would put in for a none-too-shabby performance Thursday with the combined efforts of dollar selling and well-directed remarks made by policy officials. The effort to unwind the dollar has had the most remarkable influence on the shared currency as it is the market’s preferred alternative. If we were to ignore the effects of the cross winds, we would likely find a currency that was stable or still tipped towards depreciation. That said, such bearings would have been under pressure over the previous session given the general lean in financial developments and commentary from policy makers. On the financial crisis front, both Greek and Spanish banks cut their dependency on the ECB for liquidity in September (with 97.6 and 94.3 billion euros in repos respectively). From policymakers, Weber kept up the ‘end stimulus’ march, Mersch said it was time to go back to a normal framework and Smaghi said a strong euro wasn’t the problem, it was a weak dollar.

It is remarkable nowadays that central banks have three way splits with very vocal members on the extremes. The Bank of England is no different with MPC members Posen and Sentance on opposite sides of the wall. The latter member was up again this past session saying that the recent record drop in housing prices was more likely a reflection of volatility than a renewed recession for the real estate market.

Canadian Dollar Stumbles despite Reports of a Halved Trade Deficit

There remains a stubborn association between the Canadian dollar and its higher-yielding cousins even though the growth forecasts and policy officials have said patently that the economy would see restrained performance and rates would be held through the foreseeable future. Therefore, economic data becomes more important to anchor the masses to reality. After the drop in the deficit, we now look to factory orders.

It seems to have gone under the radar; but ratings agency Fitch recently released the preliminary results of its Australian housing market stress test. According to the group, Australia’s banks would hold up in the face of a 40 percent drop in home prices and 8 percent default rate. Impressive. Adding another degree of speculative optimism, we see that the consumer inflation outlook jumped from 3.1 to 3.8 percent.

Japanese Yen Traders Skeptical of BoJ Governor’s Speech on the Financial System

Few traders nowadays will take commentary from the Prime Minister, Finance Minister or BoJ officials at face value. Early in the Asian session Friday, we would have the usual warnings that the government was prepared to act to curb the yen’s advance – with little to no effect on price action. The BoJ Governor’s vows were similarly ignored. Until the next intervention or stimulus program is issued, the market remains skeptical.